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Landlords are trying not to rent to startups in San Francisco (42floors.com)
310 points by jtbed on July 30, 2015 | hide | past | web | favorite | 290 comments

One solution that is not being discussed is for VCs to offer office space for start-ups.

VCs have longer time-horizons (a typical VC fund will be spent over 5 or so years) and appear more stable to landlords. In addition, one of the toughest problems for VCs as I understand is dealflow - when it comes to a super-competitive round, Andreessen or Sequoia will often push other VC firms out of the round by throwing their prestige around.

SF Office space could make the difference to a hot start-up looking to raise their Seed or Series A and move to the city, especially coupled with a time horizon of only 12-24 months. It may not be enough to lead a competitive round, but may certainly enough to get a piece of it.

I once heard a story that Disney spent twenty years and several billion dollars on developing Celebration and made about as much money as one of their third tier animated movies...something in the 100 million dollar range. Which may or may not be true, but it does accurately portray the long time horizons of real-estate (e.g. thirty year mortgages) and the relatively low returns compared to startups.

For a VC firm the real-estate market and rising rents have a limited effect on the success of their investment portfolio and the returns from real-estate don't justify investing money that could otherwise be put into their core business of investing in startups. A $100,000,000 can fund a lot of startups. It's not going to buy a sound diversified portfolio of San Francisco office properties.

OMFG, you reinvented the startup incubator!

It's pretty common for a VC to give a start-up a corner of their office space here in London. There are a few in my office, seems crazy it's not more common place in SF.

A very clever idea...they dont even need to offer it for free..they just need to sign the lease or buy the building and lease it to their portfolio companies.

Edit: this would be a really clever idea for a fund to raise a round just to buy real estate to lease to their portfolio companies. It will give investors a chance at indirectly investing in startups with secure value backing the investment.

It's a clever idea when the market is going up, and a really dumb idea when the market drops underneath them. If they are locked into a very high rate, and the market goes down, which is always does at some point, then people will be questioning the decision since they would either need to force their companies to pay a ridiculous rate, or lose money trying to sublease it at market rate.

The last thing VCs need to be is a landlord.

I dont agree and landlord is hardly the word I would use for NNN lease tenant Management.

In a market downturn in a worst case scenario...this real estate has underlying value besides its immediate income producing potential. It will likely retain more value than their actual startup investments.

Source: Im a former commercial real estate leasing broker and former commercial real estate underwriter.

The high rent problem emerges only when the market is over-heated, and subsides when there's a correction.

Anybody doing that would almost certainly be buying high and left holding the bag when an economic downcycle arrives.

I disagree. The same way a VC expects a few investments to cover the rest...they only need one rrapidly growing company to cover a downturn.

Any VC fund that doesnt diversify their investments to cover market movements wont survive very long.

Plus, even with a bubble bursting, commercial real estate in prime locations will retain much of its value. It will definitely outperform the startup market.

Are we talking about owning or leasing and then sub-leasing?

VCs that plan to use LP money to own and operate a commercial real-estate project are likely to get a "no, thank you", as LPs have access to REIT sector with much better purchasing power, IRRs, cashflows and operator experience.

If the VC firm is leasing and then sub-leasing, the reverse selection bias works against it, as the rapidly growing company is going to be the one moving out the soonest, needing higher square footage and shopping around for entire floors (or buildings, or campuses) will give it much better rate per square foot.

With that said, if anybody was doing it, it would be A16Z, considering how much Silicon Valley land and commercial real estate belongs to Arrillaga family.

It's a good idea, and I know it's been done at least once before. For instance, the youweb incubator operates this way.

Wouldn't this distort the VC's portfolio? Institutional investors give VCs their money to put into high-risk, high-reward investments, not real estate leases. How would they justify this?

Higher percentage equity for less money.

Institutional investors give VC's money part of which their investees then put into real estate leases anyway. Cutting out the hassle for the startup that should be focusing on product seems efficient in more than one way.

And the institutional investors likely also have a sizeable commercial real estate portfolio, so it's just a bunch of money going around in circles. I think the general term for this is 'the economy'. We probably group similar assets in to 'industries' because certain schools of thought believe this generates more economic activity, also for convenient accounting.

> We probably group similar assets in to 'industries' because certain schools of thought believe this generates more economic activity, also for convenient accounting.

Accounting is much easier than it used to be, so we can afford to be a bit more inconvenient. Maybe it's time for a vertically integrated startup service provider. Don't VCs already do things like arrange legal services for their portfolio companies?

How likely is a startup to trade points for office space? As in, a different class of VC which backs the company not with cash but with a location.

Startups already trade points for office space, by selling points to investors and using the proceeds for office space (among other things.

Another way to do it would be a startup specializing in office space. Oh, wait? 42floors?

See also: http://kyle.marek-spartz.org/posts/2014-04-30-startup-servic...

The seed-stage VCs don't have the funds to plunk down a few million to lock in a lease, and by the time you raise an A round or further you're pretty much expected to have an address.

I guess Plug & Play Ventures is the outlier here, having started in real estate.

This makes sense especially since the limited partners are probably already significantly invested in commercial real estate. What would make more sense is just to get the limited partners involved.

On a related note there is no reason VC could not do the same with talent. The could be hiring talent and feeding that into their portfolio. They could also facilitate easy movement of people between companies in the portfolio so that you get better team fit. The only problem with all this is it takes effort.

It's certainly an interesting idea, and I have to admit it's one I've pondered over in the past as being an 'opportunity' for a small competitive advantage in closing a deal.

The biggest problem is capital tie-up. Buildings are expensive, in Cali, they are even more expensive. I've always wanted to try this idea though, perhaps in a large converted-warehouse or even a traditional down-town office-space somewhere like Austin.

Again though we must ask ourselves, what's more likely to help a start-up, office-space (in a time when more and more companies are moving towards virtual working arrangements), or an additional 100k/200k? Just some food for thought, like I said, if done right, it could be a very good perk to offer, but it's hard to justify the cost.

Cough And, shameless self-promotion, I'm looking to move into the VC space in an entry-level analyst/associate position if anyone has any exciting opportunities. Or even boring opportunities, I like boring too. :)

Don't mean to derail from topic. What's value of an average seed round in SF right now?

This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's not much benefit to demanding 5-year leases if you think that (a) prices are going to keep going up for 3 or 4 more years, and (b) your tenants are mostly going to be solvent for at least that long. If the landlords really believed the bust were 3 or 4 years out, given the sub-sub-sublease problem, they'd take startups on 1-year terms at a MUCH higher rate than established tenants who could negotiate modest discounts on longer-term leases. The evidence presented suggests rather strongly that most landlords don't expect these startups to be in business in 2 years, and I agree.

It's not that the bust is coming soon. Startups are notoriously bad tenants as a class, whose life cycle is too short. Signing long lease with them just doesn't make sense. By definition a startup is an experiment to build products and a business in a short amount of time, with one to two years of funding in most cases. 9 out of 10 these experiments fail, so 9 out 10 startup tenants will move out after a short time. Commercial landlords want long term tenants, not people going out of business in one or two years.

Commercial lease is really only applied to companies that can stay in business. A long lease is often not enforceable. The incorporated company simply declares bankruptcy and it's hard to collect the money on the full term of the lease. I remember in the Dot Com bust days some failing startups simply stopped paying rents but stayed on, to stretch that last dollar or to burn out that security deposit.

Even if it doesn't fail and turns into a unicorn, its space needs will rapidly increase and it will still want to move on to bigger and better offices.

The entire point of a startup is to not stay its current size - either it will grow wildly or disappear altogether.

If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business.

Exactly. Either way they don't stay long. Landlords have learned the hard lesson over the years.

I picture Ron Conways game of life as a view of office space use in SF :)

Did you mean John Conway or were you making a joke?

Whatsapp? Instagram? Headcount != success.

Avoiding revenue does seem to be a good way to "grow" sans headcount growth, but that seems like a rare exception to the rule rather than a reason to believe that valuation growth doesn't generally correlate with employee count.

I was trying to make a subtler point with the counterexamples: that focusing on the wrong KPIs lead to unintended and occasionally negative consequences.

Quick example: imagine you are an IT consultant brought in to automate data manipulation processes in BigCorp (or more often MediumCorp since BigCorp has an internal team doing this already).

There's 150 people currently downloading data into Excel, running a few macros they know nothing about, and then reuploading the CSVs. You figure out what the data flow is, read up the API doc, and build some kind of process that does it in 5 minutes in bash on a medium instance on AWS, whilst fixing the errors the macros were making.

Will it be an easy sell? You were expressedly brought in to do this, but you'll find that the manager in charge of the 150 people - let's call him the CXO - is going to fight every inch of the way to stop you from launching your product. He'll point at the diff between his crappy but nevertheless, in production stuff and your script as cause for audit, creating a weeks/months long review process (because nobody can find the time, or wants to take the responsibility and the fight). He'll blame you for creating a "toxic" work environment. He'll bog you down in endless 2h long lunchtime meetings unrelated to the main point in an attempt to make you lose your professionalism in front of external stakeholders. He'll list missing new features then put them through the audit process.

Eventually, once a few months have been wasted, he'll point at your lack of progress as a sign of your incompetence, even though the working version was ready to be rolled out months ago. Nobody will question him because the company is profitable and it doesn't really matter how the process is done, just that it gets done. So, you leave the project, pocketing your pay - which they will pay on time so you don't make a fuss - and things continue as before for the CXO and his team, perhaps even gaining approval for a further 50 in headcount to develop the new features or to compensate for the expensive SQL and scripting training (MS stack, of course) that he's sending his entire team to in batches, whilst you'll have made a bad impression on that company's management and be burnt out of their network.

The CXO benefits outside the company as well, as he can now say he managed XYZ employees which is how people automatically gauge someone's success. This enables a succession of ever greater responsibility positions (or entry to Harvard Business School, who actually asks you "how many reports did you have"). "Well, if the previous place trusted him with 150 people..."

It's even worse in startup space because VCs and many founders understand that growth at all costs is what matters, so there are significant incentives to doing it today, even if badly, vs doing it tomorrow but well and in a way that doesn't pile technical debt. It's a winner takes all, so you just need to pour in enough millions and you'll reap the billions (in fact this is also the very structure of a VC's portfolio, investing in 10 different ways of doing the same thing in the hope one wins, even if it means the others all die).

So some founders may be doubly incentivized: making the company as large and cash flow burning as possible both to appear like the obvious winner, and to justify mammoth fund raises at a time of abundant capital seeking yield; and, if things go wrong, well, they managed hundreds of millions of VC dollars and hundreds or thousands of people in dozens of global offices and it sounds damn good for their next try.

And this is where both WhatsApp and Instagram did things differently: they focused on getting the user growth scalable without enormous headcount growth, whilst - at least in Whatsapp's case - having enough cash flow to hold on until the mega acquisition (and in Instagram's case, sustaining the company on the early rounds). Pointing at lack of revenue is not particularly useful - I would say even a red herring - when even SaaS companies go 5-10 years without showing profitability and with enormous fund raises for growth (just look at the analytics space for recent examples).

The hedge fund space - which is almost by definition results driven - has already caught on - Bridgewater type funds with a thousand employees are the exception rather than the rule and seeing AUM over a billion USD per head is more common than "unicorn" startups.

Growth in users or revenue does not always cause growth of headcount, but they are definitely correlated, especially in organizations with sales teams.

Of course, but I was countering the OP's point that "If you can comfortably occupy the same amount of space for 2+ years, you're not a startup, you're a small business."

I agree with pg's definition of a startup as being about growth (in the eponymous essay). In users, not headcount, in revenue, not funding. Even if there are many cases where one drives the other, targeting headcount growth and fundraise amounts as success KPIs is an instance of the https://en.wikipedia.org/wiki/Cobra_effect.

>The entire point of a startup is to not stay its current size

Growth for the sake of growth?

I would actually think that this is pretty far away from what startups are about.

"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth." - pg

I guess everyone is entitled to interpret words however they like, but the salient attribute of a startup is exactly what the word means: it's a new venture. And from the perspective of a landlord, that's what matters. New companies are the least predictable in their needs, their revenue stream, and their long-term prospects. They tend to have inexperienced managers and flighty owners. All of these things are true regardless of how they are funded, what industry they operate in or whether the owners are trying to become huge overnight, bootstrap into a comfortable living, or whatever else.

Established companies grow and shrink, too. They close offices and factories, open new ones, and occasionally file for bankruptcy protection. But they do these things much less frequently than a new company, and they do it with the backing of a much larger and more reliable cash flow. That cash flow means that even in bankruptcy, an established company's creditors usually end up with a significant recovery. From a landlord's perspective, these are the things that make established companies more attractive than startups. Thus, in this context at least, "startup" means nothing but "new company" and carries none of the other connotations that most people here assume when hearing the term.

Well, that's his view on it. I and many others would disagree fundamentally on those points.

There are many other types of business besides startups, and not all technology businesses are startups. That's fine, many of them work very well. Rapid growth is not the only way to run a successful business. But they're not "startups," by definition, they're some other kind of business.

You can, of course, attempt to appropriate the word "startup," redefine it to mean something else, and then attempt to get others to use your new definition, but empirically it seems that almost everyone is using pg's definition above for that word.

I wish you'd talk to the owners of a company I worked for. After 4 years in business, they continued to interview people for positions at a "startup", requiring candidates to agree to stay late or work on weekends to make the business succeed.

4 years in, no profit. After 5 years, they became "profitable before marketing costs", which was the largest business expense (in the millions).

Huh. I should dig and find out if they still call themselves a startup from 2009.

Agreed, many landlords seem to feel like the trouble is a mere few months away, although often any attempt at getting them to discuss how they arrived at that conclusion gets something like "I just know it."

So one wonders about the whole "wisdom of the crowds" or "herd" in this case, and whether or not they can sense something that isn't showing up in other indicators. I've been looking but other than the extensively covered late stage valuation madness I've not found good correlation for this feeling.

As James Surowiecki makes clear in his book "The Wisdom Of Crowds", the wisdom is only apparent in situations where the people are not able to talk to each other. But real estate agents are able to talk to each other.

In Surowiecki's telling, if you get a room full of people to write down a guess about how many jelly beans are in a jar, the average of all the guesses will be surprisingly accurate. But if the people are allowed to yell the answers aloud, the first person who yells a guess "anchors" the guesses, and so if that first guess is radically wrong, a substantial bias is introduced into the overall distribution of guesses.

Real estate agents in a small geographic area, such as one city, often talk to each other, and therefore they generate a conventional wisdom, but each of their opinions influences everyone else's opinion. So you can get a herd action that is greatly at odds with reality.

Except in this case it's not just a local phenomenon. My company does business in several markets outside the valley (and outside CA) and we are hearing the same thing, often with the same lack of evidence but no direct connection between the sources. That said, I do think there's an industry echo chamber effect.

That's a delightful observation. Is the book worth reading?

Yes, it's very good for a pop-science book.

What happens if nobody yells their guesses and people only talk to one other person at a time? That's more like what happens with real estate agents.

Not quite, because there are trade publications, conventions, forums, linkedin groups, etc... You have the 1:1 but also the broadcast

The strong real-estate market in general makes it a bit easier to act on these kinds of hunches, even if they're somewhat flaky. It's probably the case that a portfolio of big companies and clients in "conventional" industries poses less risk over the next 5 years than a portfolio of startup clients does, regardless of your exact estimates of the probability/timing of a potential crash in the startup market. With rental rates what they are, you can still make a ton of $$$ by renting to those other clients. So why not take the lower-risk clients, even if it leaves a few bucks on the table in rent? Once you're making really healthy margins, attention often turns towards thinking about how to maintain them and avoid big risks to those margins: you're a lot more worried about the possibility of everything going south next year, than about juicing the margins another 10-20%.

A lot of this may come from the belief that the economy is only being propped up by the easy money policies of the Fed, and that the Fed is going to start tightening rapidly in the fall. There's a sense that once the tightening starts, everyone will run for the exits at once, and we'll have another 2008 situation but worse.

More like when the rates rise, investors seeking interest won't have to take on as much risk to get it, so a large volume of investors will go up a class leaving the riskier endeavors with a more difficult time getting funds. This is probably a good thing, preventing bubbles from forming and popping.

I don't think there is anything, including yesterday's fed statement, to suggest rapid tightening. Smart money is currently on a .25 pt increase in either September or December, with September slightly more likely.

That's less because the numbers (measured inflation and unemployment) actually call for an increase and more to just remind markets that: rates won't stay at zero forever and non-zero rates aren't the end of the world.

Not to pile on too much, but the Fed has been amazingly slow to raise rates and only shows signs of doing the most timid increase. It's the cheap money that's fueling the mad rush, yes, but it's a blunt policy tool being used to help along parts of the country that are really still struggling.

Until Detroit and Stockton and Pittsburgh are doing well again, aggressive policy is going to continue to fuel massive growth in SF and the Bay Area.

Tightening is not coming fast nor aggressively.

Pittsburgh's actually been doing very well over the last 10 years— the recession barely happened there. And, of course, the stakes are much lower when you can buy a nice house in the city or a nice school district for $150,000.

Detroit and Stockton, less so.

What happens if those areas simply don't start doing well again? Large parts of America have been declining for generations (West Virginia, much of Ohio, etc)

Federal Reserve's objectives operate at federal level, and involve national unemployment level (target rate of ~5%) and inflation (target rate of ~2%) http://www.federalreserve.gov/faqs/money_12848.htm

Which is likely. Echoes of the eurozone here for sure; SF probably needs 8% interest rates but even 0% is doing very little for the Rust Belt and other perennially depressed regions. Now, the eurozone critics think the problem is lack of fiscal union, but the US suggests it goes a lot deeper than that.

In principle, couldn't the issue be too few fiscal transfers? I.e. San Francisco should be paying even more into the federal coffers, to be redistributed even more to Alabama and New Mexico?

Or, thinking about the other direction, even restricting ourselves to within California San Francisco and the Bay Area single-handedly pay for a massively disproportionate part of state government services and redistribution. Perhaps it's time to go way back to metropolitan city-states as the proper scale of government.

See Tim Draper's proposal for splitting California into 6 separate states: https://en.wikipedia.org/wiki/Six_Californias

It doesn't make sense to separate Marin from San Francisco. And while we're at it, I'll take Sonoma and Napa. Maybe Davis too, because, you know, YOLO.

I don't think more fiscal transfers are the answer. If you took an even bigger chunk of money away from SF, you might succeed in reducing the rate at which real estate prices there are driven upward. But air-dropping that money in Akron will probably serve only to drive up real estate prices in Akron, which doesn't really solve anything (in particular, it does not increase output).

The problem here is twofold: first, not enough of the money being created is flowing into operating assets; second, the operating assets being purchased with this money aren't productive. This seems like an obvious and natural consequence of a service economy, in which the dominant inputs are labor and real estate. When you pay higher wages, that money has to go somewhere. Some of it goes toward consumption, but most is surplus and gets invested. It has the same problem it had when it was created: it can go toward real estate, operating assets, or portfolio investment. No one wants operating assets in a service economy (because they're not productive), so it ends up in real estate or portfolio investments. That drives up asset prices but does not increase output. Diverting more of this money into operating assets (things that make stuff) would increase output and alleviate the pressure on asset prices. Instead it goes into more wages (paying people more does not make them produce more) and real estate (paying more for land or office space does not make it produce more, either). One of the few bright spots was oil, but the sharp drop in prices has made investment there unattractive as well, and has reduced nominal output at the same time.

The central bankers can control the rate of asset price inflation by making money cheaper or more expensive, but they can't do anything to increase output when the money they create is used primarily to acquire nonproductive assets, or to acquire at higher prices assets that are already being fully utilized. That's why real estate is expensive and output is stagnant, and why fiscal transfers won't solve anything.

Any number of solutions suggest themselves: relaxing regulatory requirements to make manufacturing, utilities, and other non-service industries more productive; fixing China so that surplus cash in the US can be invested in operating assets there instead of domestic real estate; fixing laws that limit the supply of real estate, both to directly reduce the price and to make it less appealing as an investment; investing more tax revenue in infrastructure instead of transfer payments to individuals (where much of it ends up in ... real estate); radical alternatives like breaking up the United States into separate nation-states that are more cohesive internally. I'm sure you can think of others as well.

It's almost as if SF should have its own currency...

Your response coupled with your username gave me a shiver, heh.

That said, why would the Fed tighten money in the fall when we're so close to an election year? I know they hold longer terms to hopefully avoid political swings, but, it just seems like bad timing.

Well, if the Fed doesn't tighten, they're at a pretty high risk of introducing serious inflation into the economy. The high commercial rents are a form of inflation; so are the wages of tech workers, and people being priced out of the Bay Area. So far, this is local to a few industries and metropolitan areas, but if the Fed doesn't act you could see it start showing up in nationwide statistics.

That said, I'm not entirely convinced Yellen will tighten. She has a reputation as a dove on monetary policy and seems weak to me, overly afraid of the effect her actions will have on the stock market. It wouldn't surprise me if we end up with another 1997 situation, where some temporary economic instability makes the Fed put off tightening or even introduce additional stimulus, and this ignites a speculative bubble that raises prices beyond all reason and then bursts.

(The username is ancient, I've had it on various sites since college, and while I'd love to be thought of as a prophet, my track record isn't that good.)

"Well, if the Fed doesn't tighten, they're at a pretty high risk of introducing serious inflation into the economy."

I doubt this will take place. If anything, I think we will see deflation?

These low interest rates have provided gambling money to the 1 percenter's. (I don't want argue--just the way I see it.)

There's a part of me that want to cash in on these low interest rates(part owner in a home in the Bay Area--that people really seem to want.), but my inner voice--wants the fed to raise rates?

Why--the poor/middle class have been left out of the recovery(unless you are in tech.). We get essentially 0 % on our meager cd savings accounts. We can't gamble in this bubbly/momentum/free money stock market?

In essence, what the poor/middle class got out of this recovery is no change in wages, higher rent, higher fees, and 0 percent on our savings. (I do appreciate the access to health insurance though. At least, they(hospitals) can't attach my interest in a home-- if I got sick, and managed to survive? Before Obama Care, I couldn't get health insurance, and always knew I was one judgement away from being homeless. (For those that hate ObamaCare, I would be happy with a 2 million, nationwide--homestead exemption, incorporated into our federal bankruptcy laws? All homes should be judgement proof.)

So Janet--raise the interest rates. The rich boys are just gambling, and laughing! They have so much money they don't know where to put it? The REIT's are buying up too many commercial/residential units; on your free money--I sometimes wonder whether its foreigners(who can buy a home in the U.S., as easily as picking up a phone), or REIT's whom own more?

See, only the banks, and their Best clients are given this free money. I am not seeing the trickle down? We got out of the risk of Depression? It's time to raise rates, and never bailout another bank again.

Couldn't agree more. There is no inflation nationally, and we are nowhere near full employment. The only reason to raise rates is to curb asset inflation among the 1%.

The problem is that the American middle class needed the bailout that went to the banks and raising interest rates will hurt an already down and out main st. Frankly, we should have just given a massive tax rebate to the middle class. Of course, it's politically infeasible, but they would have actually spent the money in the real economy rather than using it to drive up asset prices.

On a nationwide scale, the oil-price crash is adding some offsetting economic slowdown (since the U.S. is a huge oil producer) which I think significantly reduces inflation risk. The previously booming energy sector is stalling and moving towards a contraction: reducing investments, laying off employees, etc. SF rents are going up, but Houston rents are going down. The overall engineering employment market is also getting slightly less tight as petroleum engineering is no longer sucking up every ounce of spare talent.

Plus just in terms of the benchmarks they watch: The headline CPI is currently at a miniscule 0.1%, way below the 2.0% target. The personal-consumption-expenditures (PCE) rate is somewhat higher at 1.3%, but still below the target.

nor was Nostradamus'

I'd turn that on its head: keeping short rates as low as they are requires extraordinary economic weakness. The only bad time to raise rates away from zero is when a total collapse is ongoing. None of the recent economic data suggests that a collapse is ongoing; quite the opposite.

You're right that it's bad timing in that their rate increase is likely to come shortly before a bust, and therefore will be second-guessed to no end. But that's the case precisely because it's coming far too late. The solution was to normalize rates near 2% during 2013 and then raise them slowly from there as data improved, not to delay further. Normalizing policy sooner would have limited the overheating this article is all about and therefore limited the impacts of the coming bust, perhaps even to a sub-recession level. Further delay will make things much worse.

The election is irrelevant to an independent central bank, and in any case the major elections are (not that you'd know it from reading the MSM) 15 months away.

The best time to raise rates was a long time ago. The next-best time to raise rates is now.

They would need a new approach to monetary policy to really have justified raising rates in 2013, because there was neither inflation nor full employment, the two things the traditional Taylor rule watches. Inflation was stuck around 0.1-0.2% for all of 2013 (below target), while unemployment was around 7-8% (above target).

If the SF Bay Area had its own monetary policy, things look a lot different in the local statistics, of course.

Part of the problem is that the CPI-U (and the PCE chain deflator) indicators they use don't do a very good job of capturing the cost of living for anyone. Cue rant on hedonics, basket problems, etc.

In the 70s the big focus was on the wage-price spiral, so hourly wages and prices paid were important indicators. Today there is zero wage inflation going on despite near-full employment, and instead asset prices are in an upward spiral. The preferred indicators should have changed to reflect reality but they haven't. That reality is that outside of a bubble sector there may not be wage growth during the lifetime of anyone now living. When the unions ruled the roost and labor's share of revenue was sky-high, a focus on wages was appropriate. Today, unions are almost gone, wage growth is nonexistent, and virtually all money being created is flowing to owners of capital. I'm not interested in debating whether this is healthy, and neither should the FOMC; that's not its job. But under these conditions, asset prices should be the primary driver of monetary policy, not wages or employment and certainly not the near-useless CPI-U. That driver is screaming slow down!!! and has been for some time now.

I have talked to people who are in property management companies who are worried about (possible) rising interest rates are going to do to their profitability. It may not be a concern in SV but elsewhere very much so.

It doesn't really take a lot of intuition to know that the vast majority of startups are going to fizzle. Heck, "fail fast" is a mantra of the startup scene. Landlords just "know it" because they've already gone through it.

I think that the shared office spaces are really a wonderful solution so that young companies can have a great space without the long-term commitment. Ironically when we visited one (in Chicago) there were quite a few corporate "outposts" there with large companies like IBM.

The REIT's that own Class A space are conservative. This reflects the investment goals of the institutional investors whose money they hold. Real-estate time horizons are long term in order to span across market cycles and because of the underlying nature of the asset. Real property really is different.

Everyone I've been talking with seems to say "less than 24 months".

And they've been saying it for at least 24 months.

Have they been saying that longer than 24 months?

No. Same people were "no bubble" 6mo ago.

I've been solidly in the "actual value is being created by a lot of companies, mainly because tech (via startups) is destroying existing monopolies", but that's less true of some.

I think SF itself is probably a startup bubble and will correct, but it might just be a "go back to how things were a year ago", not a complete implosion. And the least bad way for this to happen is by sub-sector, like happened with all the shitty social buying apps a few years ago.

I did YC back in S11 and people were telling us "Winter is coming" even then. Markets are cyclical but it doesn't make so much sense to stress out about it.

It makes a great deal of sense to stress about it when you have a lot of long-term debt used to purchase your real estate assets, and have some control over the lease terms you offer. If you think the end of the boom part of the cycle is 6 months away, you want to lock people into the longest-term leases possible, so that they expire when the market is again, if not strong, at least not weak. If you think the end of the boom part of the cycle is 4 years away, you want to offer the shortest-term leases the tenant will accept, because they will then be forced to renew at a higher rate.

This is very similar to the dry-bulk market. It should be instructive to look at how companies like DryShips and Diana Shipping handled the enormous spike in the Baltic Dry Index several years ago, how they've fared since, and how they've managed their businesses afterward. The cyclical nature of markets cannot necessarily be controlled, but it can be harnessed to outperform one's peers, and if you are a REIT portfolio manager or smaller property manager, your job depends on doing just that.

Most startups fail pretty quickly. It seems reasonable to me.

According to the article, landlords expect economic cycles to last 7-10 years, and the last bust was in late 2008. So the next bust can be expected to occur somewhere between late 2015 and late 2018.

It's already close to late 2015, so the halfpoint of the predicted period is only 18-21 months away. That fits your observation that landlords expect the bust to be less than 18 months away.

I think that horizon was meant to be in general, not on a per-startup basis. If any given start up fails in 12 months (expected), the space can be sub-leased to someone else - but they expect this scenario to only be the case for another few years.

Yeah but if they're really remembering 2000, they know that's not so. There's always going to be some nonzero attrition rate among startups, but once a bust is under way the door slams shut on all of them at once. I'm saying I think (and think that landlords also think) that the door is going to slam shut in 12-18 months (maybe even less), not 36 or 48.

Based on the title, I expected this to be an article ranting about how someone thought their startup was being discriminated against.

Surprised that was, dare I say, "fair and balanced".

The company that produced the post needs to understand the actual reasoning behind the local market for their business to be successful so no room for ranting I'd imagine.

What interested me was the way that in this discussion, each of the separate reasons for the landlords being reluctant to rent to start-ups has been discussed separately - analysis - where what the landlords are doing is making a synthesis.

A relative of mine made the mistake of renting to a start up. Rent has not been paid for several months. Legal proceedings have started. ( This is in a country where evicting tenants is notoriously difficult. )

What country is that? Sure isn't the U.S.

Or, consider starting a company outside of San Francisco. Not just outside of SoMA, actually outside of San Francisco. (I know, I know, blasphemy.)

Eventually the price of real estate and labor will be so high that the relative disadvantages of other locations will not matter.

I'm good friends with a startup that was trying to raise money for their Utah-based company. Really strong growth rate, revenue coming in, etc.

They went up and down sandhill road/SF, and got a couple really lousy offers for funding, and were shocked at how harsh the VC community can be.

Their board member (one of our closest/best mentors) recommended they go back, but make the first slide in their pitch deck "We're moving to San Francisco." They got five term sheets in the first two days, ended up raising from a top-tier firm.

Yes, this is anecdotal, but no, this is not an exaggeration. You can raise money being unwilling to go to the bay area, but you have to have a really compelling vision/growth rate. People have to be fighting over you.

VCs are weird.

Oakland or something may be a different situation (not sure if doing the South Bay thing would even save you any money - Palo Alto ain't cheap), but anecdotally people in Utah get told the same thing again and again. You can stay in Utah, and costs will be way lower, but you'll probably pay for it. (Note: our company is remote with headquarters in Utah)

Did they move to SF?

They have 7 people in SF and 45 in Utah

That's how you do it. Rent a tiny space in SF for your token SF people, then open offices in Portland, Boulder, Austin, etc. You're still an SF company, but your runway is twice as long as everyone else's.

This strategy needs a name. Maybe "The SF funding tentacle"?

"Bait and switch"?

The East Texas Shuffle

Austin is considered Central Texas.

(East Texas is famous, or notorious, as where patent trolls like to file their lawsuits.)

Yeah, I was riffing on the idea of finding a favorable municipality for business reasons and actually running your company where you actually want to run it.

Although given the history of this sort of thing, I guess it'd be more appropriate to call it the Maryland Shuffle.

The siphon

ZenPayroll is opening a Denver, CO office, looking to hire 100 people[1].

[1] http://fortune.com/2015/07/28/zenpayroll-jobs-denver-colorad...

Boulder is an incredibly difficult market to hire in. I was talkign to the head of Google Boulder when he mentioned they can't even get engineers hired there.

Living in Boulder, I'm curious as to why?

I'm seeing the other side of the coin, where getting hired is proving very difficult. The joke here is even the dirtbag climbers have PHDs.

It might be hard to get hired writing perl in Boulder (I checked out your profile) but if you're interested in other languages, I can do some intros for you.

Or you could always move to Amsterdam: http://blog.booking.com/

Having visited Amsterdam, I'd be curious to live there on a permanent basis, although I am also in love with mountains (which the entire country lacks...) - as I think a lot of people who end up in Boulder can relate to.

Booking does have a somewhat strange reputation when it comes to their coding style, I'm not sure if I could really come on board fully with their workflow.

Ha. I haven't gotten a Perl job in Boulder since 1999, and I don't know if I've seen one posted since then, either. My expertise is a little broader than just slinging Perl, fortunately, but I do find it to be a most agreeable language to a creative, visually-oriented mind.

What am I referring to is the scenario where you can apply for a job, and rarely even expect to hear back from a potential employer, as the total number of people also applying makes that impossible. This, I don't think, is very different from other areas of the country.

Google moving to Boulder is sort of a mixed bag, and there is a number of people who are not looking forward to them coming.

> What am I referring to is the scenario where you can apply for a job, and rarely even expect to hear back from a potential employer, as the total number of people also applying makes that impossible. This, I don't think, is very different from other areas of the country.

Right, I think that is a function of resume spraying, to be honest. I agree that it is pretty common.

Note to employers! You can stand out by treating applicants as human being and simply replying 'no, it doesn't seem like a good fit' when someone applies for a job. I love what Zapier does, for example--they respond to everyone.

> although I am also in love with mountains (which the entire country lacks...)

Luckily there there are countries not far away (closer than most US states to Colorado) that provide some serious mountains. Imagine living in a large (fictional) cultural and tech hub in the plains 100 miles east of Boulder. That's what Amsterdam may be like in this regard (distances are off, but infrastructure looks much denser in the Netherlands and its neighbors).

The mountain side is still more distant than in Boulder, but "different country" means a different thing in Europe.

He mentioned a lot of things related to hiring - but specifically it was that there are a lot of engineers in the Denver Metro (in fact I think the highest grouping of software engineers in the US), but that many enterprise companies kept them employed. He mentioned that it was difficult to hire younger SW engineers out of school as they were going to startups. Also, that their average age is skewing older, which is driving up their benefits (healthcare, etc) costs.

Boulder is weird... I was all set to go there, and got a better offer in Bend, Oregon, which is significantly cheaper in terms of housing. I'm kind of happy about how it turned out. I didn't like the idea of turning over such a large portion of my paycheck to a landlord.

Things are not cheap here in Bend, but I have more of a feeling of getting in earlier, while things are still growing.

I loved Bend when I visited a decade ago. It has a lot of the benefits of Boulder plus an ocean not too far away (but further from an airport and major metropolitan area).

Didn't seem like much business was happening when I visited, though (other than tourism).

Is there a tech scene now?

> Is there a tech scene now?

Yeah - it's small, but seems to be taking off.


I had some doubts about moving back to the US from Italy, but so far we're really happy in Bend. We'll see how the winter goes.

How was the tech environment in the portion of Italy you were in?

Interesting. I applied to Google a while back and never got a call back (except someone called me trying to get me to move to Mountain View or NY for a devops team).

I know they are building a bigger campus[0] so maybe they are having a hard time because it is a bigger number of reqs than in the past?

0: http://www.denverpost.com/business/ci_27063628/google-build-...

I think the advantage of a massive skilled labor pool and investors within walking distance is a nearly insurmountable advantage.

For a small company, I'd say the time/cost of hiring a few good engineers is way more than a few months rent. You'll certainly pay a respectable headhunter quite a bit.

It's a lot more complicated than that - there's a massive skilled labor pool, but at any given time, a huge percentage of them are gainfully employed and not currently looking.

Many of the really amazing labor pool members are recognized as being amazing and are compensated and rewarded in such a way that it will be difficult to draw them away.

Then those that are looking are being courted by every other company.

The converse can be true - it can be much easier to get very high quality talent somewhere that there is not a massive labor pool. You'll attract the people who don't want to live in SF or NYC, or want a certain lifestyle, or to be close to where they went to college, etc. etc.

I'm not saying that starting a company not in SF is inherently better, but that "insurmountable advantage" is also one of the biggest disadvantages about SF. Your mileage may vary.

I never understood why investors need to be 'close.' I also don't understand why most startups need an office. Basecamp is entirely remote with an office just for show. They only use it a few times a year. Unless you build hardware, an office is unnecessary. A dumb waste of money, especially early in a startup's life. I do some side work for a major international medical lab and their entire Dev team is remote -- and this is enterprise. I am not sure some flower delivery app that aggregates social sharing metrics using Go really needs to have an office. As far as 'access to talent,' that's a bulkshit metric as well. Remote workers can be anywhere. You can even hire foreign workers without needing visas. Most engineers aren't living in San Fran except for their jobs. Making $140k per year is the San Fran equivalent of minimum wage, especially if you have a family. Compare that cost of living to any other place in the country and San Fran engineers actually don't get paid very well at all. Add California taxes into it and I'm just not getting the attraction.

I live in the South of France in a big house that costs me $800 per month. I am about a 10 min walk from the TGV station that can take me to Paris in just over 2 hours. My kids are in French pre-k, I have top notch medical insurance that costs $139 per month to cover the whole family beyond the government insurance and I don't have to worry about my wife getting harassed by urine soaked homeless people at BART stations.

I can't speak for all engineers but given that there is an entire word outside of San Franscisco, I can see zero advantage to living there. Talent is there because they have to be. I'm sure a huge percentage would rather be working from a beach in Thailand or Tulum.

As far as investors, who cares? If you have a product people want to buy, investors will come to you. It's a myth that proximity matters. There were investors long before Silicon Valley startups were a thing. Plenty of billion dollar companies founded everywhere else. At this point, San Fran and the valley are prestige locations as opposed to offering any competitive advantages.

We've tried and found that remote engineers are less effective, they miss out a lot from group whiteboard discussions, overhearing office chatter "Hey bill, service XX crashed again because of YY (and Mike overhears and says "Oh yeah, I saw YY in service ZZ too and fixed it"), and just general team cohesiveness. In theory we could hire more people for less salary if we had a remote workforce, but we're still a small company (less than 100 people) and it's a lot harder to manage a 100 person geographically spread out engineering team than a 50 person local team). Paying the San Francisco premium for salaries (and rent and everything else) is less than the cost to build and manage a distributed team. As we grow, that will likely change as we'll be able to have specialized teams and open satellite offices, but for now hiring in the Bay Area makes the most sense.

We could likely build an accomplished team in any major metropolitan area, but since our investors and board members are here (as are the other companies they invest in and manage), it makes sense to have the company here. (not entirely our choice, when someone invests millions of dollars into a company, they want to be close to it)

I have found that this says more about the ability of the management and less about the ideas underpinning remote work. Large companies figured out some time ago that they could have a large remote workforce. So it isn't just Basecamp or whoever that is doing remote work. Remote work has it challenges but (and here is the important point) they can be managed if the team knows how to manage.

FOSS proved over two decades ago that you can build complex competitive systems with people you have never met. The fact that you couldn't make it work doesn't mean that it doesn't work. It means your company could not figure out how to make it work for you.

Large companies manage to not go out of business while still having a large remote workforce.

Large companies often have a ton of inertia, not a lot of competition, and they often take a very long time to fail. Just because they've started doing it, and are getting away with it for now, does not mean it's a good idea.

I'm not saying it's NOT a good idea, I'm just saying you can't tell based merely on the fact that they're doing it. They also have lots of employees who put in the bare minimum and punch a clock to draw a paycheck. Does that fly in a smaller, less well-funded company?

Google, a very large company with nearly unlimited technical resources, continues to bus workers 40 miles down the peninsula every day because they want workers to stay on-site. Google, of all companies, could afford as much office space in SF as they need, yet they still choose to only have a relatively small satellite office there.

The experience of large companies that have large remote workforces and FOSS projects that have workers so motivated that they'll work for no pay probably doesn't translate well to a small startup that doesn't have the resources of a large company, nor the employees so motivated that they'll work for free.

Remote work, as you say, has it's challenges, and sometimes it's better to pay the money avoid the challenges than to pay the money to confront the challenges.

Hmm... it could be argued that Google's repeated failures in the social networking space are compelling evidence that it's one of the least likely companies to succeed with remote workers.

Facebook is pretty much identical to google in it's ship workers to HQ practices.

When teams have problems with remote v local employees, I've found this to be because they actively treat them differently, sometimes without realizing it.

It takes work to establish your culture to work remotely well -- if you just hire some people that you only ever hear on Skype during standup and give them work, they don't become enmeshed in the fabric of the company. Cliques form everywhere but they can be especially brutal in excluding remote workers from the 'core' teams that are seen as successful within a company.

I'm sorry to hear it hasn't worked for you. If you attempt it again, make sure you evaluate whether you've built a culture based on 'being there' before hiring people who can't be. Lots of people make this mistake and just see cheaper workers.

When teams have problems with remote v local employees, I've found this to be because they actively treat them differently, sometimes without realizing it.

Yeah, some teams like to take advantage of the far richer communication that's available in person rather than handicapping everyone to the lowest common denominator.

If you attempt it again, make sure you evaluate whether you've built a culture based on 'being there' before hiring people who can't be.

IOW, discourage informal social interactions between employees. Don't permit them to go to lunch together and talk at leisure about things.

Companies do not like spending money they don't have to. So since the Internet hasn't killed business travel, there must be a very good reason its still worth it.

"overhearing office chatter "

I honestly do not believe for one second that this is a thing, or that it's a significant thing.

This is definitely a thing that happens. Some teams also do a lot of work in hallway conversations, and this sort of accidental interaction is critical. I witness this all the time.

I would much prefer that my company let me work remotely. The Bay Area is full, seriously, and I'd be happy to work from many other places.

But denying reality doesn't help.

I think there are potential technical solutions to this problem (VR office at home), but I suspect it'll take legislation (aimed at getting vehicles off the road) to make remote work a real thing that a lot of people do every day.

That kind of smalltalk definitely happens, but where it happens varies a lot. At some places probably 80% of the idle work-related chatter happens on the IRC/Slack, while at others it happens mostly in the coffee area or hallways. Seems to be a company-culture difference in large part. Both are ok for me, but the places that use IRC/Slack a lot are easier to be remote at (or even just on a trip) without being excluded from all the impromptu discussions.

Not just easier to be remote at, but easier to remember the smalltalk/'check out this url'/minor decisions.

And easier to disseminate. Searchability is far superior with tools than with voice conversations.

That is half my job as CTO - catching snippets of conversation to help direct my staff outside of direct scrum or meeting times.

Two engineers talking to each other will share far more useful info than they will directly.

Nothing like a noisy office space to boost productivity!

It's actually not that noisy normally, just the clatter of keyboards.... until there are problems with something, then it can become pretty active. Most people stick with Hipchat or email for routine communications like getting stuck on debugging a piece of code or where to eat lunch -- unless they are talking in one of the break rooms, or they duck into one of the conference rooms. People tend to be pretty cognizant of the open office so if you hear people talking, it's generally something worth listening to.

> I never understood why investors need to be 'close.'

It's particularly jarring given how many of the same investors are arguing we should tear town universities and replace them with MOOCs, demolish shops for Amazon, and so on and so forth. Apparently face time and interpersonal interaction is an irrelevant artefact of the old world except when it comes to their own industry.

Do as I say, not as I do.

>Making $140k per year is the San Fran equivalent of minimum wage

Is this really true? Seems far-fetched. Isn't that $20-30k higher than the Google base starting salary?

No, I don't know why people always say that. I live on less then half that. I eat out, drink, do stuff on weekends and pay my school loans and bills. Thats like 7000 a month? If you can't get by with that comfortably high cost of living is not your issue...

If you don't mind me asking, what are you paying for rent? Been considering moving out there so trying to get a feel for things.

I have an exceptional deal on my 2 bedroom in Mountain View which costs me around 2400/month. I believe the current market rate for my apartment is something like 3300.

If you're willing to live a bit further out (like Milpitas/Santa Clara), you can live somewhere for under/around 2000, which (when split with a spouse/partner/roommate) can be reasonable given the salaries in the area.

So I'm assuming you split the place with someone else? I imagine it is no trouble to find roommates out there, or am I wrong?

Looks like I'd have to live with roommates if I moved out there.

700 for a a tiny room in a house. Were talking about minimum wage style living... I could spend up to ~1900 on a apartment. Just haven't been able to find one. It's real competitive to get a place. Day to day expenses don't seem any different to me then when I lived in NY. Except wine, bottles can be as low as $4.

The comment says 'especially with a family'

Sure, a single guy can rent a single room and walk everywhere. Add in wife and kids and you need three rooms, a car, somewhere to park it. Schooling, activities, shoes and clothes, stuff...suddenly 140k isn't looking too flash anymore.

Well, let's do some calculations...

Assume you're making 140k, after 10% retirement contribution and CA taxes leaves about $6400 per month net. With the average 1 bd apartment at $3200 now that's half your take home wage. Leaving $3200 per month is $800 / week. Or $20.00 an hour at 40 hours. Given typical start-up hours and not even counting the typical food/internet/car expenses. So, if you want to look at it as an all-in after expenses, yeah, even that kind of salary can feel like minimum wage. The economics of minimum wage here in SF are a LOT worse...

Wowza! So at $140k/year the effective tax rate in CA is around 40%? (Or maybe my math is bad.)

EDIT: And some that may not all be income tax? E.g. in Ontario one pays fed income tax, provincial income tax, Canada Pension Plan, Employment Insurance, and a few other I may have forgotten. In London, UK one pays income tax, national insurance, and council tax (property tax paid by property occupiers).

At that income level, the federal tax is %28 and CA is %9.3, so about %37 yeah. Max is 33+12 = %45. There's also ~9% sales tax in most parts of california but every time you go out you better tip %20.

And for all that, we get to pay for our own health care and retirements too!

I said effective tax rate not marginal tax rate. It looks like US and CA income tax has brackets, so even if your marginal rate is 37% you won't be paying that rate on 100% of your income.

That said, I'd believe that if you include expenses like health care your net pay would be ~40% less than your gross pay. :P

Don't forget social security taxes - flat 6.2% on your first $118.5k of earnings: http://www.ssa.gov/pubs/EN-05-10003.pdf

It's an exaggeration, but there's no denying that SF is one of the most expensive cost of living places in the country.

"I never understood why investors need to be 'close.' "

Many of them want to "influence' the companies they invest in, to give them the best chance of seeing a return. They feel they can't do that as effectively if they can't hop in a car and drive to the office quickly.

"I also don't understand why most startups need an office."

Many managers, startup or not, are afraid of remote work, and feel that not being able to see butts in seats means that people are slacking off.

"As far as 'access to talent,' that's a bullshit metric as well. Remote workers can be anywhere. "

But as we've established, most of these companies are not set up for remote work. As such, remote workers being anywhere isn't relevant.

"As far as investors, who cares? If you have a product people want to buy, investors will come to you."

Ahh yes, the old "meritocracy" myth. As it turns out, simply having a good product isn't enough to succeed.

"It's a myth that proximity matters."

Except reality has not followed your logic.

"There were investors long before Silicon Valley startups were a thing. Plenty of billion dollar companies founded everywhere else."

Yes there were. But it's significantly harder to do it elsewhere given the realities of the situation.

Feel free to start your company wherever you want and show us that we're wrong. I'd be happy to have the pool of startup locations be more diverse.

It both helps and hurts - just yesterday Yelp admitted that the "Unicorn bubble" was hurting their profits:


For some reason it has only occurred to them now that hiring for offices in cities other than San Francisco might help them get talented developers.

"A Yelp spokesperson told Re/code that to combat the hiring problems it has plans to hire people in other offices across the country."

They're not opening up new offices, they're looking to hire where they already have offices like New York and Phoenix.

Unfortunately all of Yelp's other offices (other than Hamburg) are exclusively sales offices (i.e. no engineering)

Hmm... Eventually the massively skilled labor pool will cost so much that the advantage will disappear. Good point about the investors, though.

We'll see. Perhaps it really will be an exogenous event which will halt the San Francisco craziness.

I think San Francisco is better for medium sized companies looking to IPO... I think you should get a base level somewhere much cheaper.

Most decent sized to large cities in North America have a large skilled labor pool.

My bet is that Baltimore is poised to become a big tech hub. There was a ton of money spent in the tech sector after 2001 and that is tapering off now and you have a bunch of engineers with 10 years experience and the low cost of living in Baltimore which makes for a lot of opportunity to try things. The city also has a very Art oriented quirky culture like SF had before it priced out all the creative people and a lot of other things going for it like lots of cheap housing, right on the ocean, and several universities and colleges.

Baltimore is still relatively expensive and is (locally) still widely regarded as a dangerous city that most people don't want to go to, quirky or not. There's a reason that most of the tech jobs in the general area are around the DC suburbs (and pushing further out each year).

There's still incredible problems with getting good engineers to come to the general area as well: Baltimore/DC has SF-level cost of living but not nearly the amenities of the Bay Area. The weather here sucks most of the time, the general culture leans suit & tie, the traffic is just as bad if not worse, you don't have the redwoods/beaches/outdoor things nearby that many engineers tend to value. Moreover, there's still a major stigma against working remotely out here that hurts many East Coast businesses when looking for software folks.

I disagree, it is extremely affordable compared to SF (A good amount of nice housing for 200-300k) and Tech salaries are largely the same as SF.

Speaking of Baltimore, as someone who knows almost nothing about it other than what I saw watching "Ace of Cakes" and from what I see when the city comes up in the news, I came across this map today [1], which left me wondering what is going on there.

It's a map of all murders in Baltimore, filterable by time period, race, gender, district, zip code, age, and cause of death. There are also some yearly charts below on the page.

What is going on with murders? 164 in the last six months, and they seem to be spread widely over the city, with just a couple murder-free sections (including one decent sizes one in the north part of the city, between 83 and 139).

Is those SF like art quirky culture areas, and the tech company areas, in the apparently murder-free areas?

For comparison Los Angeles has had 150 murders so far in 2015, even though it has 6 times the population [2]. Los Angeles county, with 16 times the population of Baltimore, has had 332 murders so far in 2015, so just over twice as many as Baltimore in the last 6 months.

(Both of the sites I cite are pretty interesting. Anyone happen to have a list of similar homicide exploration tools for other major cities?)

Note: I'm not trying to rag on Baltimore. Just astonished at the number and the geographic distribution of the murders there.

[1] http://data.baltimoresun.com/bing-maps/homicides/index.php?s...

[2] http://homicide.latimes.com/neighborhood/la-city/year/2015

Baltimore has very serious and endemic issues with crime, drugs, poverty and government -- all of which combine to result in an extremely high murder rate. The numbers have improved since the historic peak in 1993 (353 murders), and Baltimore is no longer the #1 city in murders per capita in the US, but it's still not good.

If you're interested, there are several excellent explorations of the particulars of Baltimore's problems (which are present, usually to a lesser extent, in many other cities) from David Simon:

  - Homicide: A Year on the Killing Streets (book)
  - Homicide: Life on the Streets (TV series)
  - The Corner: A Year in the Life of an Inner-City Neighborhood (book)
  - The Corner (TV miniseries)
  - The Wire (TV series)

The vast, vast, majority of the murders are drug and gang related and are confined to the bad parts of town on the east and west sides of the city. It looks like a large swath on the map because Baltimore used to be the third largest city in the country and is currently at half the population it was at it's height. The good areas are around the inner harbor, Fells Point, Canton, Federal Hill, as well as from the harbor running north to the JHU undergrad campus area, around Charles Village and Hampden. Personally I've lived here 10 years now and never felt unsafe. Another positive is that unlike SF single women outnumber single men by a large margin.


I agree, but for very different kinds of startups.

Baltimore can be anything it wants to be, but what it's aiming at right now are a batch of far more conservative startups than you'd likely see in the valley.

B2B, marketing, government and fortune 500-based startups have every much the right to succeed in Baltimore as anywhere else, and with access to DC, certain markets are even better suited to Baltimore than to SF... but from everything I've seen, it would be a great deal harder to make something like Twitter work for a Baltimore-area VC, and where SF is killing it is in understanding the potential of network-effect startups that don't necessarily deliver immediate value, and to my eye, Baltimore VCs aren't remotely ready for that sort of gamble.

Shortmail and Sickweather are probably the closest I've seen to breaking that trend to date, but Shortmail's already shuttered, and I hope that doesn't sour the pool.

> right on the ocean

No, it's on the Chesapeake Bay.

If crime didn't matter, New Orleans' tech scene would blow up a lot more before ballmers.

Like Oakland. Can get to SF by BART if needed.

Not this weekend, you can't!

Nor on Labor Day

I wish people would do that. I know when I see jobs that interest me, they're almost always in SF or NYC. Neither location is somewhere I'd flourish. Seriously, what is the actual appeal of SF? I just don't see it.

It depends on who you are.

Consider someone who likes walking to work, groceries, and everything they need; hates driving and owning a car; loves having top caliber arts and entertainment; feels more alive living in a place where people are on the street; and enjoy an evening walking bar to bar drinking with friends and not having to worry about a DUI on the way home, cities offer a lot.

That is Boston, Manhattan, and SF in this country.

(Oh, and I can hold my husband's hand in the city without getting weird stares. That's not possible in many parts of the country.)

SF has top quality arts & entertainment? I'm from New Orleans so I'm spoiled, but the live music scene in SF is the pits. Stern Grove is cool, but it's only during a short time of the year. The SF ballet is excellent, but most other A&E things fall way, way short of other US cities.

And Philadelphia. And Portland ME. Even Burlington VT. The list goes on. All of these places have lower costs of living than NY, SF and Boston.

Also: Austin, Chicago, Pittsburgh, Atlanta, Seattle, etc.

Some things I like about a few of those: Pittsburgh is the 2nd-safest major U.S. city for pedestrians (after Boston) [1], is nice and compact, and a beautiful setting in a valley at the intersection of two rivers. Chicago has one of two 24-hour rapid-transit systems in North America (NYC is the other one), a beautiful lakefront, great deal of ethnic diversity, and is possibly the best American city for skyscrapers (NYC is the only other contender). Atlanta is walkable/bikeable if you live in the city, has the 3rd-largest gay population in the U.S. (after SF and NYC), and is one of the leading centers of Black American culture.

Overall imo there are lots of interesting urban places to live, the main issue is just making sure to live in the actual city rather than the suburbs, if you want a city lifestyle.

[1] http://www.smartgrowthamerica.org/documents/dangerous-by-des...

> , the main issue is just making sure to live in the actual city rather than the suburbs, if you want a city lifestyle.

Yeah but then your cost of living shoots up. I mean, I've priced Austin real estate. If I want to buy 2BR apartment in downtown Austin (the closest analogy to where I currently live in Brooklyn) I'm looking at half-million dollar properties. Which is fine for an NYC boy like me, it's what I'm used to, but then why am I moving again?

Hey, someone else who remembers that First Portland exists and is pretty great!

How much time have you actually spent in SF?

As an SF Bay Area resident since 2009, there's no better place if you want a career in tech.

Yes, you can still have a great career outside of SF but it's a lot easier here.

I have lived and worked in 4 US cities and the best engineers are here. The selection of good jobs is immense. If you are a decent engineer, you have so many choices.

A couple days for a conference.

From what I've read in this topic and elsewhere, the cost of living is very high.

I'd rather not live in a city with as much of a chance of an earthquake as SF has. Living in a known disaster area just seems kinda off...

Then there's just personal preference.

I live in a city of less that 200K, and I find it to be larger than I like. The other day I hit stop and go traffic in a larger city, and found myself wondering why anyone would subject themselves to that on a regular basis. Or subject themselves to crowded mass transit systems, those crowds are a big part of why I use my car instead in my city.

And so on...

The train system around NYC makes it practical to live in more idyllic locales than the heart of the concrete jungle. There are plenty of quaint towns built around LIRR and NJ Transit stations.

It sounds like you've found a big part of the appeal. People go where the jobs are, after all.

"nobody goes there anymore it's too crowded"

Huge tech community, almost perfect weather (it's not San Diego, but it's close), fairly liberal politics, diverse culture (means tons of interesting and fun cultural activities, and lots of interesting places to eat that you don't get somewhere that isn't a larger city).

You may not agree with or value those things, but a lot of tech people do.

San Francisco weather is not even remotely close to San Diego... It's significantly colder, foggier and windier, particularly in the summer. The high/low in June/July/August is comparable to December/January/February in San Diego.

Which is great, because San Diego is too hot & sunny.

You don't think similar proportions of people in other fields would also like diverse culture?

Nope. Tech workers trend more liberal, more well-travelled and so on (I'm sure you can find negative ways to frame the differences as well). The cultural differences are real.

Rather, tech workers in San Francisco trend more liberal. This is because the city generally trends liberal; it's not specific to tech workers. Outside of that bubble, tech workers are the same as anyone else.

The largest single employer of tech workers in the world is probably the US military, and those tech workers definitely don't trend liberal.

I'm sure they might; I don't know. I'm talking about tech people.

Eventually we might consider that rent is just outright theft, we're not actually paying for value, landlords are parasites who suck surplus value from the economy, etc.

Then don't rent an office? I really don't know what you think the alternative would be. I assume the value comes from not having to work by a flaming barrel down by the river.

Tax asset appreciation like regular income. The tax burden should fall on those most able to bear it, and should fall as equitably as possible. The current approach encourages people to accumulate assets and rent them out rather than producing things others want to consume.

Although astazangasta is complaining about rent, he doesn't actually want to buy land either. He thinks he is entitled to free land.

Native Americans iirc thrived without the concept of "privatized land" for thousands of years. Same for basically other self-sustaining native population in history.

Okay, you got the occasional clashes with other clans for land but hey, you could always move somewhere else. That's impossible now, given the massive numbers of humans on this planet.

Sorry, that is not correct.


I doubt there's ever been an urban culture that didn't have some concept of property ownership, whether by individuals, "nobles", or the state.

Depends on the particular geographic area you're talking about. In the Northeast, for example, land rights were radically different from the Aztecs.

That said, it was never as simple as "everyone holds land in common and can do whatever they want with it individually."

Were there urban cultures in the Northeast? The largest I've heard of seem more like "towns" than "cities".

There were full-scale cities in the Midwest and South, of course, but I don't think we know enough about those cultures to say what their property rights were like. I'd bet money they were a lot closer to the Aztecs than to a typical hunter-gatherer band, though.

The Tlingit of the Northwest also had a complicated system of property rights, including something akin to what we call "intellectual property" (though there were significant differences to our system). They also kept large numbers of slaves.

Landlords deliver value by managing and providing a physical space to work in, but when the landlords have lobbies and use their political power to artificially restrict the supply of space and jack up the prices to no end, then it is evil.

The landlords are therefore parasitizing the economy.

Although this article is about commercial space, residential space is just as outrageously priced. I think there should be three things that should never be allowed to be artificially restricted just for the greed of a few: food, water and housing.

Here's a good Economist article on this: http://www.economist.com/news/briefing/21647622-land-centre-...

> we're not actually paying for value

The value you are receiving is location.

If you do not care for location, then rent office space in Tennessee where you can pay less than 1/4 of SF prices.

The location is hardly value created by the landlord, though. (The improvements to the land, like buildings, may well be.) Unlike people who earn income by producing something, people who extract ground rent are not adding value. What you're paying for then, is essentially bad luck: due to some complex set of historical reasons, this particular person owns that land and you don't, so you have to pay them a fee to use it. Why do they own it and you don't, when both of you did just as much work to create that land (i.e., none)? Usually you don't want to see how that particular sausage was made; the history of land distribution and acquisition in the U.S. is quite "dirty".

You could also build/buy your own office. Then there would be no landlord.

Probably not a good idea for startups whose long term success is unpredictable though.

Well, then, new landlord business if the startup fails.

i agree, but it does remove the landlord ;-)

Just start in a garage I'd say. It's cheap and the darkness, the damp and the oil fumes are a motivator to success.

You know, even though you're busy being a startup and all, it honestly does not take that long to clean up a garage.

But then how will you get motivated? Passion? That sounds like it takes time and effort to develop, when I need to be startup-ing!

You're paying for the location and services (well, with NNN leases, just location). What other value do you need?

Fine, run your startup in the middle of the street. There's no value in the office, correct?

Yes and no? They take on risk as well right?

They only get to be parasitic when the real estate market is dysfunctional and supply is constrained, possibly artificially. In some sense they are acting as gatekeepers to a limited resource and providing liquidity by setting prices high enough that only those with need are willing to pay.

There are already several comments on this Hacker News thread where people suggest things like remote work. Others suggest moving to less expensive cities. Someone mentioned Tennessee. "mooreds" made the suggestion "consider starting a company outside of San Francisco". But such comments ignore (are in denial? are in defiance?) what is actually happening, which is described in the 3rd sentence of the linked article:

"the migration of startups from the Peninsula to San Francisco have led to the lowest vacancy rates ever"

The big move away from the cities played out in the USA as automobiles became popular. The trend started in the 1930s and was at its peak during the years 1945 to 2000. It's worth noting that what we are looking at now is some re-centralization. That may be surprising or counter-intuitive, but since it is happening, it is worth investigating why it is happening. And all of the folks who think remote work is the answer might want to ask themselves why the ease of remote work is not offsetting the trend that's moving jobs into place like San Francisco and New York.

"...why the ease of remote work is not offsetting the trend that's moving jobs into place like San Francisco and New York"

Because it's scary. If you're Google or Facebook you don't have to bother with it because people will move to you. If you're startup whatever.io then you want to avoid risk that isn't directly related to your purpose so you probably try to park next to Google or Facebook and work hard on other solutions to the "how do we hire" problem.

That said, it actually is offsetting that trend. It's just doing it too slowly to be noticed, but as someone who's worked remotely for an SF startup for almost 6 years and pays attention to the Who's Hiring remote posts, etc. I can tell you there's been a somewhat dramatic uptick in remote hiring in the past couple of years.

> It's worth noting that what we are looking at now is some re-centralization.

I think there are some local re-centralization trends, but it doesn't really show up in the overall numbers. Most of the fastest-growing areas in the U.S. are suburban, e.g. the Dallas suburbs are growing far faster than SF is.

Fivethirtyeight had a piece on this focusing on millennials: http://fivethirtyeight.com/datalab/think-millennials-prefer-...

All fair points, but remote work also has increased massively ( http://fortune.com/2015/02/12/lessons-learned-from-3-compani... ). It is interesting to consider that well-paid remote workers, free to live where they choose, may also be choosing to live in these bigger cities. I'm fully remote and I live in a city, albeit a relative small one (SLC), when I could easily pay a ~$300/mo mortgage for a small rural house in the middle of nowhere if I chose to. I suspect that re-centralization is orthogonal to, rather than antithetical to, remote work.

> ~$300/mo mortgage for a small rural house in the middle of nowhere

How's the internet access out there?

Slow but available. There's a lot of empty land if you aren't picky about where you live...

In many communities, quite good.

Obvious arbitrage possibility is obvious, and being exploited by new companies (WeWork for $10b valuation) themselves -- if you're better at evaluating startups than big dumb landlords, you can profit here. And there isn't a shortage of capital to play this game.

If you're skilled at evaluating startups and have access to capital, owning real estate is a waste of time. This isn't an arbitrage opportunity. At best it's just borrowing short to lend long: the liabilities of the spot lease firms are in long-term leases and debt owed against owned real estate; the assets are short-term and demand leases on that property. This is no different from what gets overextended banks in big trouble when a bust occurs. In fact, we can even go a little farther: the banks that think they're the best at managing subprime credit risk (i.e., have the most underwriting skill) tend to take the biggest hit, because that skill is almost never real.

Landlords aren't dumb. Their payoff is pretty much binary: ($rent, 0). It doesn't matter how well a startup does, the landlord will get at most $rent.

If anything its the VCs who are dumb: why are they not investing in startups in Midwest US, or (say) Paris, Sao Paulo, Tokyo, etc?

WeWork is selling risk reduction for cash.

Should there be a downturn in tech, WeWork will be left holding the bag.

I'm working out of WeWork (Chicago office) and I think the SF WeWork is much different from most of their other locations. While there are a few venture backed startups here, most of the companies tend to be small businesses or single person companies that were previously at places like Regis or working out of Starbucks. For example some companies here: [model agency, recruiting agency, marketing firms, lawyers, accountants, payroll servicing company, a sunglass maker, stock traders] So while a downturn in Tech would hurt them in some of their locations, at the others I don't think the pain would be as bad. We were hoping there would be more tech companies here and were surprised at the number of non-tech firms. FWIW we really enjoy it and have grown now to our third office as we add people. Thats the real value here, month to month leases so we can scale up or down as our team evolves.

Same goes for many of the NYC offices. Our space near Empire State seems to have a lot of consulting businesses that would otherwise be renting out something more complicated (need their own receptionist, water bills, internet bills, blah blah blah)

WeWork might not be in the best position if most of their clients are venture-backed startups and they all go away within a few years.

Worst case, they go out of business if all the other startups go out of business.

It's leverage. When you have ~unbounded upside and capped downside, lever the fuck up. (And yes, this is how you get ants.)

> When you have ~unbounded upside and capped downside, lever the fuck up.

I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.

Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?

Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.

If you're a startup founder with fiscal authority, do your darnedest not to sign long-term anything unless it reduces both long-term cost and risk more than it adds to liabilities. There are a bazillion dot-coms in the 1990's that optimistically over-expanded and got stuck paying rent for years afterward on empty buildings they furnished but never used.

Seriously, expand only if you have people stacked three high and just enough to cover the next 1-2 years of conservative growth. And don't spend arms and legs on new furniture or other generic, high-depreciation items, get gently used kit from liquidators and recyclers. Enterprise shops throw out perfectly good stuff because they're redecorating or it's lifecycled out because it's recurring budgeted. Capture every advantage of their waste to your benefit.

Put another way, don't waste cash to look rich, spend some to make staff and yourself comfortable enough to get the job done and keep morale/productivity up (Penny wise, pound wise.) A badge of honor for entrepreneurs is spending as least as possible with the best results. Only looney billionaires buy diamonds to use as doorstops. (Sure most startups flush cash down the drain, but there's no reason for founders to inordinately waste investor's cash because it counts against their reputation in future dealings.)

While in SV, I couldn't understand the hate towards East Bay: it's fairly priced, close to the 'hub' and not as violent as otherwise portrayed.

Could anyone elaborate?

90% racism but people will talk in endless circles to avoid admitting it.

Also, sssshhhh. Stop with the hype. Ruining one city is enough.

I always thought a BIG benefit of SoMa is the fact that you can draw employees from East Bay and South Bay (as well as SF itself).

On the other hand, a, say, San Mateo -> Oakland commute is pretty much untenable.

Yup. This is a huge advantage to SoMa. I even hear hesitations around FiDi as it's not easily accessible by Caltrain (let alone Oakland).

The Central Subway and new Transbay Terminal might alter this. That said, I don't think the new Transbay will directly link with BART -- will still be a walk, which is a bit of a shame.

Of course the FiDi is accessible by Caltrain-just get off at Momtgomery or Embarcadero. New stereotype of SF tech workers- lazy and class privileged!

Caltrain doesn't have a stop at Montgomery or Embarcadero. You have to switch to BART before SF, walk, or take one of the muni lines that is slower than walking.

i think you are confusing Caltrain and BART. Caltrain doesn't stop at Montgomery or Embarcadero, BART does.

I live in West Oakland and the favorite game is still "fireworks or gunshots". Its a great place to live if you're in your 20s, but I wouldn't want to move my family here. Maybe up by Berkeley is better?

Huh, that's funny, because West Oakland is mostly families and they are fighting for their lives to stay in their neighborhood due to pressure from people like you.

P.S. if you're scared, move.

Not scared! Most of the families I've talked to around my neighborhood want to move out to a better / safer place. Could just be my specific block though.

I have lived in West Oakland and currently live in Adam's Point (both in Oakland's borders) and it feels like an entirely different city.

Ah yeah, I can see why! But I'm a cheapo startup founder. My safety for a thousand bucks a month? Sure I'll give it up!

East Bay is great. Oakland is starting to look like a decent city.

Doesn't mean there aren't real disadvantages, but it's something most people/startups should at least consider.

Oakland is HUGE. You can't generalize it that much. There are so many sub area in Oakland that range from insanely dangerous and crappy all the way up to incredibly safe and beautiful (Rockridge, Piedmont). Also areas near Oakland like Emeryville are getting much nicer.

Unfortunately the prices in these places are also skyrocketing. I started paying $3k/mo for 1400sqft in a not great part of Emeryville last year. The current price for my exact same unit is $3400.

the East Bay is way bigger than Oakland/Berkeley. Walnut Creek, Pleasant Hill, the Lamorinda area, Danville, Pleasanton -- all very nice, safe towns with good bart access. No startups there though.

Those places are pretty far from SF though. Not unbearable, but you're probably looking at >1hr door to door.

That's the point - you don't have to live in SF or rent office space in SF, you can avoid SF altogether while still having the benefits of the startup scene an hour away.

sure there are, a lot focuses on enterprise though. the peoplesoft legacy lives on in various forms over here.


+ Fear of (on average) poorer population, classism, and other *isms encoded in the previous two.

East Bay rents went up ~30% in the last year. So people are moving there, and so the wave of gentrification spreads outwards...

Another reason I didn't see mentioned: many open floor plan spaces are still permitted as light-industrial spaces. Due to the intricacies of the city's zoning laws and unfortunate politics, landlords are at a greater risk of receiving a zoning violation for leasing space to a tech company than they would be if they found a "blue-collar" tenant.

It was so different back in 2006. At Quantcast, we sublet a big space that Snocap (Shawn Fanning's second company) had abandoned when they shut down. It was cheap I dunno maybe $2/sqft/mo. We paid $1 for all the existing furniture.

Then we needed to sublet our old space at 2nd and Townsend. Shawn Fanning's new company Rupture wanted the space. We hadn't moved out the furniture yet, and they were interested. So we sold it to them for $1. Way more relaxed back then.

Why is it just assumed economic downfalls and recessions should happen every 7-10 years?

Self fulfilling prophecy?

Bugs in the system?

My hypothesis is that it is a real thing, and it has to do with human behavior. 7-10 years is enough time for enough people to forget the pain of a previous crash. It's enough time for a new generation to arise.

There are of course other cycles based on human time scales. In movie soundtracks, there is a rule that you should never insert a song 0-15 years old. It either has to be brand new, or older than 15 years.

Where does the number 15 come from? Human time scales. A half a generation. The number 5 would be too short, while 30 would be too long.


For an artificially structured system of agreed upon rules that are in everyone's best interest to optimize for prosperity, "human time scales" and emotional memory, in economic systems, should have little influence.

Especially considering historical blunders and clear lessons that we've learned.

It requires human effort to maintain any emotional memory. If you don't contact your relatives with a card or a call to remind them you exist, you don't enjoy a good relationship with them. And if the government doesn't periodically run campaigns like "don't waste water", people forget to conserve it. These are commons goods that the market doesn't ascribe any value to unless it is directly related to current product and service. Hence, we are flooded with advertising. There is advertising everywhere. But there is no such thing for "remember the last boom and bust."

The concept is called the Business Cycle: https://en.wikipedia.org/wiki/Business_cycle

As you can see from that page, the theories about what it entails and what causes it are many and varied.

Bugs in the system, inherent to the worker units. Turns out evolution hasn't shaped up to work for the collective good very well or for very long. Once there's an exploitable aspect to the economy, certain types find it and disrupt the system as a whole, causing a rebalancing of the economy.

Experience. History.

Here's a graph from 2013 from Calculated Risk (an economics blog) that shows recessions in blue shading.


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